Stockholm (NordSIP) – In his annual “Letter to the CEO”, BlackRock’s Larry Fink outlined why and how the world’s largest asset manager has decided to “place sustainability at the centre of our investment approach.”
A Paradigm Shift
Listing a range of studies, protests and investor concerns that came to the fore in the last year, the CEO of BlackRock acknowledged that “awareness [of climate change] is rapidly changing”. According to him, “climate change is almost invariably the top issue that clients around the world raise with BlackRock.”
“From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios,” BlackRock’s CEO explained. ”They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy.”
Managing a New Reality
The result of this acceleration in the momentum of sustainable finance led Fink to anticipate that “we are on the edge of a fundamental reshaping of finance.” Fink expects this paradigm shift to result in “significant reallocation of capital” and “sooner than most anticipate”.
In practice, the CEO’s reckoning with climate change and sustainability will be reflected in several changes at BlackRock. Firstly, sustainability will not be an integral part of portfolio construction and risk management across the asset manager. Moreover, BlackRock will also embrace exclusions and abandon investments that present a high sustainability-related risk, such as thermal coal producers. Concomitantly, it will also launch new investment products that screen fossil fuels, at the same time as it reinforced its commitment to sustainability and transparency in investment stewardship activities.
Improving Disclosures and Voting Activity
“Disclosure should be a means to achieving a more sustainable and inclusive capitalism,” according to Fink. To this effect, the CEO explained that BlackRock intends to upgrade disclosures and sustainability from present SASB standards to the standards of the TCFD, by the end of 2020.
Armed with this commitment to sustainability and enhanced disclosures, BlackRock will also take a more confrontational approach to boards that fail to realise the imminent changes over the horizon. “Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
Picture courtesy of BlackRock